What Makes China Tick?

Given that China is expected to purchase $25 billion in agricultural goods from the United States this year, it should come as no surprise that a session called "The China Puzzle" drew a standing-room-only crowd at USDA’s Agricultural Outlook Forum.

Attendees wanted to know how recent changes in Chinese agriculture policy might impact imports. They asked for the back story on why Chinese authorities have rejected since November more than 600,000 tonnes of U.S. corn and corn products. And they were treated to pictures of the latest Chinese government attempts to improve agricultural innovation.

It remains to be seen how China’s new agricultural policy, announced last fall to alleviate pain felt by domestic producers, will play out, said Fred Gale, a senior economist the Economic Research Service of the USDA. Few specifics, besides the government’s intention to set target prices for grains, have been released.

"Farmers get a subsidy if prices are below the target. If it’s over, consumers may get a subsidy.... It’s a fairly simple system," Gale said. But problems could result if market prices fall substantially and subsidies skyrocket, he said. The Chinese government could run afoul of World Trade Organization regulations that guard against protectionism.

The irony, Gale said, is that Chinese ag imports increased even after the government increased domestic support in 2008 and 2009. "The subsidy program created a price gap and led to imports," Gale said.

Since November, Chinese authorities have rejected more than 600,000 tonnes of U.S. corn and corn products containing the genetically modified trait, MIR 162. The trait has been awaiting Beijing’s approval for more than two years.

"One can reasonably question China’s commitment to science-based trade," said Scott Sindelar, minister counselor for agricultural affairs, with the Foreign Agricultural Service in Beijing, China. The country’s government suffers from weak interagency coordination, with no one agency driving the process, coupled with a lack of transparency in regulations.

Sindelar said anti-GMO sentiment among the Chinese public is real. Part of the problem is that the country lacks the scientists to tell stories about the virtues of GMOs. "It’s an issue that’s really become a touchstone for a segment of Chinese public" that’s opposes foreign trade and is concerned about foreign dominance, he said.

Gale added that China has its share of "conspiracy theorists" who erroneously think USDA or multinationals set prices.

China has a three-stage import protection program that includes port inspections. Before goods even reach Chinese ports, importers must perform risk assessments. "The methodologies are unclear," Sindelar said. "There’s arbitrary enforcement of standards."

Rules of entry may vary by port, Sindelar said, adding that it’s sometimes easier to get goods through a port authority tied to a local industry, such as soybean crushing. Local jobs may depend on receiving shipments.

While domestic subsidies receive most of the attention, much of the Chinese government’s agriculture spending is devoted to research and development, said Gale. The government must build infrastructure and introduce new techniques because of minimal private investment.

The latest emphasis is on greenhouses, irrigation and drones that spray pesticides. Gales showed pictures of previous failed experiments that can be seen all over the country. "When farmers don’t have skin in the game, the ideas tend to die on the vine," he said.

Gale reported that there’s a "lot of concern in China about aging of farm population," because most able-bodied young people have left rural areas for the city where they can make more money. Gale said the government has even created subsidies to encourage younger people to consolidate land for farming.

China suffers from weak regulation of domestically produced food and drugs, said Sindelar, noting that people are scared of eating bad food "and they blame the government." Last year the government amended a 2009 food safety law that gives producers the primary responsibility for food safety. The law created a new food and drug administration, which has issued more than 400 food safety standards since 2009.

The policy relies on the public to monitor and report violations. "It’s proven that their system doesn’t protect Chinese consumers," Sindelar said.

The USDA officials were asked whether Chinese officials are concerned about their high level of soybean imports, which are expected to increase further during the next 10 years. Will China begin to stockpile soybeans?

"No one has ever talked about a possible soybean interruption," Gale said. "I’ve never heard that discussed in China at all. Soybeans are not considered a strategic crop."